Category

Industrials

Industrials: Nippo Corp, Beiersdorf AG, Dongfang Electric Corporation and more

By | Daily Briefs, Industrials

In today’s briefing:

  • NIPPO (1881 JP) Gets Some Cowbell – It Probably Needs More
  • DAX Index: Quiddity Leaderboard for December 2021
  • Dongfang Electric (1072 HK): Looks to Have More Room to Go

NIPPO (1881 JP) Gets Some Cowbell – It Probably Needs More

By Travis Lundy

Just under three weeks ago, Nippo Corp (1881 JP) parent company ENEOS Holdings (5020 JP) announced a slightly convoluted takeover of Nippo which was announced at a decidedly low price of ¥4,000/share. 

I wrote about this in ENEOS To Steamroll Nippo (1881 JP) Minorities, calling the bid “egregiously low.” I thought the “right price” was ¥1,500-2,000/share higher. 

I also thought that because of ENEOS’ starting point, anyone who wanted to block it needed to go big and public with their opposition. I have long thought the issue of parent-sub takeovers and MBOs required more active (and passive) investor stewardship, and have published Japan Needs More Cowbell about active investors and a kind of open letter to the former GPIF CIO Hiro Mizuno in the Financial Times, about The GPIF and the Complexity of Stewardship.

On Friday we got a little noise as a small fund called the Monex Activist Mother Fund, managed by a fund management firm called Japan Catalyst, where the CIO is Oki Matsumoto, the current CEO of Monex Group Inc (8698 JP), put out a press release.  

More discussion of the opportunity and its parameters to date below.


DAX Index: Quiddity Leaderboard for December 2021

By Janaghan Jeyakumar, CFA

DAX is a blue-chip index that now tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange. 

Historically DAX has consisted of 30 companies but following the Wirecard AG (WDI GR) scandal, the index was reconstituted and the number of constituents was increased from 30 to 40 to reduce concentration issues and more stringent eligibility requirements were introduced to protect the overall quality of index constituents in future. This reconstitution was completed on 20th September 2021. 

The DAX Index is reviewed four times a year. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021. 

More below the fold.


Dongfang Electric (1072 HK): Looks to Have More Room to Go

By Osbert Tang, CFA

While Dongfang Electric Corporation (1072 HK) (DEC) has witnessed excellent share price performance into 2H21, we believe there is still more room for the stock to go. Earnings revision momentum is positive, with FY21-22 forecasts revised up by 10-11% in the last month, but such magnitudes are likely to have still under-estimated DEC’s earnings. The fact that its new orders for 1H21 reached a record high and grew by 32.9% adds comfort to our investment thesis. 

We estimate DEC’s backlog at around Rmb96bn now, good enough to cover 2.6x its annual revenue, and this was up from 2.3x at end-FY20. New order momentum in 3Q21 looks sustaining strength, and with PER valuation at 15x for FY21 and 13.5x for FY22, it does not look demanding given its technical strengths and encouraging outlook. Longer-term, besides the benefits from hydrogen and pumped storage, we see DEC well positioned to gain from China’s vigorous attitude towards nuclear generation as well. 


Before it’s here, it’s on Smartkarma

Industrials: Sembcorp Marine, Power Construction Jsc and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Last Week in Event SPACE: Sembcorp Marine, AusNet, Shinsei Bank, MMC Corp
  • Power Construction JSC No.1 (PC1 VN/Trading Buy)_Update_Momentum from wind power projects

Last Week in Event SPACE: Sembcorp Marine, AusNet, Shinsei Bank, MMC Corp

By David Blennerhassett

Last Week in Event SPACE …

  • There was still a potential risk of MGO non-completion for Sembcorp Marine (SMM SP), and the results of the Rights Issue seemed to suggest there was still a potential risk of MGO non-completion. But as expected, Temasek announced its MGO for SMM.   
  • It appears APA Group (APA AU) dawdled in its negotiations with Ausnet Services (AST AU), and now must bide its time as Brookfield’s exclusivity period expires. 
  • SBI Holdings (8473 JP) have a quite powerful position here. They have a bid for Shinsei Bank (8303 JP) at ¥2,000/share and nobody else does. The trade skew is, at this moment, to be long.
  • MMC Corp Bhd (MMC MK) continues to trade wide to terms ahead of next week’s shareholder vote due to a combination of timing, PNB (potentially but unlikely) blocking, and the large downside to the undisturbed price. 
  • Plus, other events, CCASS movements (flagging possible Offers and  IPO lock-ups), and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)

M&A – ASIA

Sembcorp Marine (SMM SP)  (Mkt Cap: $1bn; Liquidity: $11mn)

The Sembcorp Rights Offering is complete, and allocations are out as of Friday night.  and it turns out, the MGO Option as discussed in One More Day To Trade Sembcorp Marine Rights, Harvest the Spread, or Buy The MGO Option as rights trading was coming to a close, was the right way to think about it.  Only 84.2% of the Offering was covered by shareholders exercising their rights. Temasek took 42.6%, which means that only 72% of the other shareholders took up their rights. That meant that based on the Offering Circular and the Temasek Undertakings therein, Temasek was going to end up increasing its stake by more than 1%, thereby triggering an MGO Option (it required 98.33% minority takeup to avoid going over the MGO trigger).

  • Travis Lundy would wait for S$0.081 or S$0.08/share to buy. One could put a GTC order in at those prices or even S$0.079/share even now (just remember to take it out once the MGO completes). There could be a couple of very quiet days before settlement. If he were long SMM shares, Travis would probably sell a pop and wait for the overhang to clear a bit (or buy back in the selldown of excess rights overhang.
  • Fundamentally… VERY long term, the stock is probably cheap. But that could be years, and Travis expect if you follow the stock, it will be a better buy later at a higher price. It may even be cheap in a merger with Keppel, but that has to be the subject of a different tweet. Its main problem now is people don’t expect it to make money for a few years.  Tactically, Travis expects some overhang, and expects the presence of the Compliance Offer MGO to act as a place where those long might sell just above, and buy at or around terms, and we stay stuck in a muddle for a little while.  At S$0.081 it might be good to own. Once the Compliance MGO is over, it might be good to own at a higher price. 
  • As expected, on 22 September 2021, Temasek announced its Mandatory General Offer for shares of SMM. Temasek ended up at 46.6% which triggers an offer to remain in compliance with Rule 14.1 of the Takeover Code. For each Offer Share: S$0.08 in cash (the “Offer Price”).  The Offer Price is final and the Offeror will not revise the Offer Price or any other terms of the MGO. There will not be any extension of the Closing Date and Shareholders who do not accept the MGO by the Closing Date will not be able to do so after the Closing Date. Now is the time to put in the GTC bids at S$0.079, S$0.08 and possibly S$0.081/share.

Link to Travis’ insights:
Sembcorp Marine Rights Done – The MGO Option It Is
Sembcorp Marine MGO – The Implied Option Tells You About the Market, And It’s The Wrong Price

Ausnet Services (AST AU) (Mkt Cap: $6.6bn; Liquidity: $7mn)

This past Monday, Victorian electricity operator AusNet announced it would open its books to Brookfield after receiving a revised non-binding Offer of A$2.50/share in cash. It is understood Brookfield made a A$2.35/share Offer on the 30 August, followed by $2.45/share, before all parties settled on $2.50/share. As it turns out, according to APA Group (APA AU), APA had approached AusNet with a non-binding proposal of A$2.32 on the 1 September, and that APA had made AusNet aware last Thursday (16 September) it intended to make a revised proposal. APA sounded out AusNet’s major shareholders prior to its initial approach, and that APA understood Singapore Power was supportive of APA and AusNet engaging in discussions. APA had also discussed the initial proposal directly with State Grid. Not surprisingly, APA is miffed AusNet entered into a period of exclusivity with Brookfield.

  • Under APA’s proposal, AusNet shareholders would receive $1.820 in cash and 0.0878 stapled securities in the Australian Pipeline Trust and APT Investment Trust, with a mix and match facility enabling shareholders to elect more cash or more securities, subject to caps in each. Apart from the higher price, APA’s Offer enables AusNet shareholders to participate in the back-end via APA scrip, plus there is no FIRB conditionality. In addition, APA would only require 4 weeks of due diligence, compared to seven to eight weeks for Brookfield.
  • No word from China’s State Grid. However, I doubt either Singapore Power or State Grid would publicly comment until either proposal passes due diligence and a firm Offer is made. AusNet has nine directors, with Singapore Power having two members, and State Grid one. Given AusNet’s board “unanimously recommend shareholders vote in favour of (Brookfield’s) proposal”, in the absence of a superior offer, suggests both key shareholders are supportive of an Offer. Still, only recently was China’s running a ruler over Aussie assets. At a time of heightened tensions between Australia and China, it is not clear whether China is ready and willing to cash in.
  • FIRB is a non-negligible issue for Brookfield. The Critical Infrastructure Center, which facilitates FIRB’s decision-making, designates electricity assets as critical assets. Yet AusNet is already majority-owned by foreign investors. But 100% of Victoria’s electricity distribution and transmission could fall into foreign hands if both Brookfield prevails and KKR takes out Spark Infrastructure (SKI AU). If that is not a desirable outcome to FIRB, potentially Spark is more at risk of FIRB rejection.
  • UPDATE: After AusNet rejected its Offer – deeming it “inferior in respect of price, form of consideration, structure and certainty” –  APA has now made an application to the Takeovers Panel such that the circumstances (including the entry into the confidentiality deed with Brookfield) “hinder, or are likely to hinder, the acquisition of control of [AusNet] taking place in an efficient, competitive and informed market .. and deny, or are likely to deny, [AusNet] shareholders an opportunity to participate in the benefits of a proposal”. I’d be surprised if the TO backs APA’s submission. 

Link to my insights:
AusNet (AST AU): APA Elevates Tussle With Brookfield And Taps Takeover Panel
AusNet Services (AST AU): Spurned APA Trumps Brookfield’s Proposal
AusNet Services (AST AU) Opens Its Books to Brookfield

Shinsei Bank (8303 JP) (Mkt Cap: $bn; Liquidity: $17mn)

On 9 September, SBI Holdings (8473 JP) announced they would launch a Tender Offer at ¥2,000/share to acquire 27.68% of Shinsei to take them to 48.00%. This was discussed in SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! After the weekend had passed, there was news that Shinsei was looking for a white knight, and the Board would meet this past week to discuss a poison pill warrant issuance. On the 17th September, Shinsei announced that it “reserved” its Target Opinion on the SBI Tender Offer based on having sent SBI questions but having not received answers yet.  Shinsei also announced the introduction of Takeover Defense Measures via Poison Pill Shareholder Rights to be introduced at an EGM, also announcing that the Record Date would be 13 October (and an official announcement would be made 28 September.

  • SBI would have two other choices:  It could extend the Tender Offer and plead its case to shareholders, saying “if the EGM approves such a measure, SBI will withdraw its Tender Offer, and it might be forced to sell its shares in the market, and that might hurt the share price“, or … SBI could simply withdraw the Tender Offer.
  • Travis expects SBI to extend.  That may change, but I think SBI have a quite powerful position here. They have a bid at ¥2,000/share and nobody else does. Shinsei having more time may not get them a white knight overbid, and if it goes to EGM without an overbid in place, getting free shares but having the total be worth 30% less seems like a bad trade for Shinsei shareholders. If SBI withdraws before the EGM vote, it doesn’t get the optionality of having the shareholders reject the poison pill.
  • Separately, if Shinsei comes up with a white knight to buy 48% or buy up to 48% then get Shinsei to issue treasury shares to get them to 48%, as long as that Tender Offer closes after SBI’s and SBI’s fails, SBI could tender its shares into a tender offer by Sony or 7&i or someone else. If we think 67% is an appropriate effective minimum pro-ration for SBI’s Tender Offer, if someone needs to go from 0% to 48%, and SBI decides to participate with all 20.32%, the effective minimum pro-ration would be about 77.9%. This would still be a decent outcome for minorities. 

MMC Corp Bhd (MMC MK)  (Mkt Cap: $1.2bn; Liquidity: $3mn)

On the 3 June, Seaport Terminal (Johore) Sdn Bhd, a wholly-owned entity of Tan Sri Syed Mokhtar Albukhary, announced an Offer for port operator and utility play  MMC at RM2.00/share, a 70.94% premium to last close. Seaport Terminal owns 51.76% of MMC.  The Offer is being done via a selective capital reduction and repayment (SCR) exercise.  On the 4 August RHB announced, on behalf MMC’s board, the SCR will be tabled to shareholders at a forthcoming EGM. The circular was dispatched on the 8 September with the EGM scheduled for the 30 September. Payment under the offer is expected towards the end of December. The independent adviser, Alliance Investment Bank, deemed the Offer not fair, but reasonable.

  • This still looks done. But this is trading wide, with a largish downward move on decent volume earlier this week. The key risk is how PNB (with 20.9%) will vote.  Presumably, they were sounded out prior to the Offer announcement. 
  • The other risk is one of timing. Dec-end for payment is in line with SCR precedents. There may well be some High Court hearing disruption as Malaysia faces significant daily cases of Covid – >15k. 

(link to my insight: MMC Corp (MMC MK): This Is A Buy)

Ale Property (LEP AU) (Mkt Cap: $0.8bn; Liquidity: $1mn)

In July 2021, Australia’s largest freehold pub properties owner ALE received an “unsolicited, confidential, conditional, non-binding indicative proposal” from the Charter Hall Consortium (a consortium managed by Charter Hall (CHC AU). A couple of months later, on 20th September 2021, ALE announced they had entered into a Scheme Implementation Deed. Based on this agreement, ALE securityholders will have the default option of accepting 0.4080 CLW securities and cash of A$3.673 as consideration per ALE security or they can choose between an all-scrip consideration of 1.1546 CLW securities/ALE Security and an all-cash consideration of A$5.681 cash/ALE security. On top of that, ALE securityholders will also be entitled to receive ALE’s September quarter distribution of A$0.055/ALE security. 

  • The Deal is conditional on ALE security-holder approval. Top security-holder Caledonia who controls 33.6% of total votes has agreed to vote in favour of the transaction.  Woolworths’ spin-off Endeavour Group controls 8.9%. They are ALE’s sole tenant and they also rent some pubs that belong to the Charter Hall consortium. They should be friendly to this transaction too. Together with the above-mentioned security-holders, Janaghan Jeyakumar expects friendly security-holders to collectively hold around 47.7% including individuals and insiders. 
  • The acquisition of ALE will make the Charter Hall the largest owner of freehold pubs in Australia. This can be seen as a bet by Charter Hall on the post-lockdown rebound anticipated in the retail and hospitality sectors following the easing of COVID-19 lockdown measures. This is a friendly transaction. ALE Directors unanimously recommend that ALE security-holders vote in favour of the Schemes, in the absence of a superior proposal and subject to the Independent Expert concluding that the Schemes are in the best interests of ALE security-holders.
  • The gross/annualized spreads for the max-scrip and max-cash considerations were 3.5%/13.9% and 1.5%/6.1% respectively (not including CLW borrow costs in the scrip portions) as at the time of Janaghan’s insight. NOTE: The ex-date for the A$0.055/security distribution is 29th Sep 2021. The CLW distribution of (estimated (A$0.074/unit) for CLW should be the same time.

(link to Janaghan’s insight: ALE-Charter Hall: A Post-Lockdown Bet on Australian Pubs)


Roxy Pacific Holdings (ROXY SP), a small-sized property developer focusing on the Asia-Pacific region, has announced a pre-conditional Offer at S$0.485/share, a 19.8% premium to last close. The offer price will not be increased. No dividends are expected to be declared. The Offeror consortium is led by Teo Hong Lim, chairman, and CEO of Roxy-Pacific. The pre-condition pertains to all necessary consents under the Overseas Investment Act of New Zealand. Roxy holds an interest in two commercial properties in Auckland. The Offer, assuming it proceeds, is conditional on the Offeror holding not less than 90% of shares out.  Irrevocables total 76.44% of shares out. This is done. It is the Offeror’s intention to delist the company. Link to my insight: Roxy-Pacific (ROXY SP): Pre-Conditional Offer Led By Founder

India-based data management and analytics firm eClerx Services (ECLX IN) released their public announcement document for their latest buyback after market close on 20th September 2021. The buyback was initially proposed in a board meeting on 13th August 2021 and later approved by shareholders (postal ballot) on 16th September 2021.  The buyback price has been set at INR2,850/share and eClerx expects to buy up to 1,063,157 shares through a Tender Offer. The total size of the buyback will be approximately INR3bn (~US$41mn). Link to Janaghan’s insight: EClerx Buyback: Adding Fuel to Momentum

Back in June, Sanshin Electronics (8150 JP) announced a buyback for 28.8% of the company. It came after a long buying campaign by one specific investor. Normally this would be “good news.” Those who want to get out could sell a significant portion of their holding without friction and others could look at the situation and see significant improvement to capital allocation and huge accretion. Travis’ piece was called Sanshin Electronics (8150 JP) BIG Buyback Tender – Not Designed For You . Now Nishimatsu Construction Co (1820 JP) has announced a similar transaction in that it will buy up to 15,000,000 shares for up to ¥54.447bn. That is 26.98% of shares outstanding. The share buyback transaction will be undertaken as a Tender Offer, running from 22 September to 20 October, with the buyback price ¥3,626/share, which is a small premium to the close – Yay! And once again……it is not for you. Link to Travis’ insight: Nishimatsu Construction (1820) About to Do Its Last Buyback for a While, and You Can’t Participate!

Back on the 19 July, systems integrator Empired Ltd (EPD AU) entered into a Scheme with Capgemini SE (CGEMY US) at a price of A$1.35/share, a 64.6% premium to last close, and an all-time high. The Offer had the unanimous backing of Empired’s board. CEO Russell Baskerville, with 5.8% of Empired’s outstanding shares, intended to vote in favour of the Scheme. The Scheme Booklet is now out. The Scheme Meeting will take place on the 25 October, with expected implementation on the 16 November. The Independent Expert concluded that the Scheme is fair and reasonable. This looks done. Trading tight at a 1.5%/11.3% gross/annualised spread. That’s reasonable, but this is not a super liquid arb situation. Link to my insight: Empired (EPD AU): Scheme Booklet Out. Meeting On The 25 October

STUBS

First Pacific Co (142 HK) 

I see the discount to NAV at 61%, down from ~71% last year, but off its recent low of 52%.  From a long-term view, the current discount to NAV is around levels only exceeded in the wake of Covid. The implied stub has been lower. First Pac is essentially a passive holding company, with a chunk of net debt.

  • There are clear signs of reduced losses at the parent level. Buybacks continue and provide a degree of long-term support. The current NAV discount is around pre-Covid levels. Since the interim results, the market has assigned HK$2.34bn (~US$300mn) less for First Pac’s stub ops. That appears unjustified. However in the short term, absent a major catalyst, I’d like to see the share price settle a bit here before getting involved. Longer-term, this appears a decent entry point, with a long-term average discount to NAV of 50%. Shares, however, remain thinly traded. 
  • For the trade, keep it market neutral and hedge out the three largest NAV contributors  Indofood Sukses Makmur Tbk P (INDF IJ)PLDT (TEL PM), and Metro Pacific Investments Co (MPI PM), which together account for 121%/100% of NAV/GAV.

EVENTS

Bank Rakyat Indonesia Persero (BBRI IJ) (Mkt Cap: $30.8bn; Liquidity: $34mn)

13 days ago Travis wrote Bank Rakyat Indonesia (BBRI)’s Mega Rights Issue – Plenty of Opportunity Short-Term and Long-Term suggesting that the stock could fall as it entered its rights trading period. It has. At one point on 20 September the stock was down 7% from time of writing. The time for people to buy and exercise is done, except for professional investors who can turn around their corporate action in a day or less. 

  • The markets being upset about Evergrande will not likely roil Indonesia. Indonesia will be more in the news with upcoming IPOs.  BBRI is expected to regain the earnings it lost recently, and more, and the expansion of micro-lending is expected to pave the way for years of growth as micro-lending customers eventually move up the curve. Long-term, this looks like a decent long to own.
  • And short-term, selling pressure related to the rights offering will abate temporarily after Wednesday and will abate more generally after shares are delivered, especially after the Excess Rights Shares are delivered in a week or so. Big picture, Travis’d cover shorts here. 

(link to Travis’ insight: Bank Rakyat Indonesia (BBRI) Rights-Related Selldown Basically Done)

M&A – US

Sohu.com Inc (SOHU US)  (Mkt Cap: $0.9bn; Liquidity: $11mn)

Around 9.5 months after Tencent (700 HK) and Chinese search-engine Sogou Inc (SOGO US) entered into a definitive agreement for a Going-Private Transaction, the Offer was granted unconditional approval by the State Administration for Market Regulation (SAMR) on the 12 July.  Apparently, that wasn’t the final approval as the regulators continued to overhaul and tweak China’s tech sector. On the 23 September, Sogou announced the completion of the merger and shares have been suspended. Payment will be made “as soon as practical”. So that’s done. This is a short-form merger – there was no vote. Dissension rights are now afforded for short-form mergers and I would expect some investors to take up those rights. 

  • Separately, Sohu pockets ~US$1.2bn from the merger via its 33.8% equity stake in Sogou – or net cash of ~US$1bn – versus its current market cap of US$857mn. This is before taking into account the US$579mn privatisation value of Changyou.com (CYOU US).
  • Charles Zhang is Sohu’s largest shareholder with a 26.09% equity stake. Unlike Sogou, Sohu only has one share class.  If  Zhang intends to take Sohu private, this would require a long-form merger, involving the approval by a special resolution of Sohu’s shareholders, requiring two-thirds of the voting rights of the shares present and voting in person at an EGM.
  • Also, keep in mind the Holding Foreign Companies Accountable Act, which was signed into law in December 2020, technically implies Chinese companies may be delisted as early as 2024 if they do not comply and share audits. That might seem a long way off, but the Tencent/Sogue merger took 15 months to complete.  A secondary listing on the HKEx will also take time – especially if the vast majority of US-listed Chinese companies are thinking along the same lines. 

M&A – EUROPE

Grifols SA (GRF SM) entered into a share purchase agreement to acquire a 45.48% stake in Biotest AG (BIO GR) from Tiancheng International Investment Limited for €1.1 bn on 17 September 2021. In a related transaction, Grifols will launch a voluntary tender offer to acquire the remaining ordinary and preference shares in Biotest at same terms (€43/ordinary share and €37/preference share). Both will be paid in cash and represents a premium of 23% and 4% over the closing price of 16 September for each type of share. The deal values the equity of Biotest at €1.6 bn (13% of Grifols’s market cap pre-announcement) and EV of €2 bn. Link to Jesus Rodriguez Aguilar‘s insight: Grifols/Biotest: Preference Shareholders at Disadvantage & Grifols’s Leverage.
Regulatory changes would suggest holding shares in Naturgy Energy Group SA (NTGY SM) until the end of the acceptance period is not desirable. Link to Jesus’ insight: IFM/Naturgy: Board Opinion And Bid Scenarios.
Asterion bumps its Offer for Retelit SpA (LIT IM) from €2.85/share to €3/share, and a reduction in the threshold from 66.67% to 50% of the share capital. Link to Jesus’ insight: Asterion/Retelit: Sweetened Offer Means Transaction Will Go Ahead.

Entain (ENT LN) confirmed that it had received a proposal from DraftKings Inc (DKNG US). On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to 2,800p/share (630p in cash and the balance payable in new DraftKings Class A common shares). The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, 19.2x EV/NTM EBITDA and 39.2x Fwd P/E (source: Capital IQ consensus). The PUSU deadline is 19 October. Link to Jesus’ insight: DraftKings/Entain: Cash and Shares Approach.

M&A RISK ARB WEEKLY ROUND-UP

  • This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks. I number 38, mostly firm, deals around the region.

INDEX REBALS

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

China Lng (931 HK) 17.72%UBSHang Seng
Amuse (8545 HK)10.16%St ChartNumerous
Jinshang Bank Co Ltd (2558 HK) 16.55%SinopacCiti
Source: HKEx
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Helen’s International Holdings (9869 HK) 79.55%CICCOutside CCASS
Source: HKEx

I listen to a bunch of music when writing insights. Here are a handful of tunes, old & new, that piqued my interest during the week: Chambers Brothers’ Uptown, Brendan Benson’s House In Virginia, Little Simz’ Point & Kill, Portico Quartet’s Terrain: II.

What are you listening to? 

Enjoy your Sunday!


Power Construction JSC No.1 (PC1 VN/Trading Buy)_Update_Momentum from wind power projects

By Mirae Asset Securities

Valuation and recommendation We raise our target price for Power Construction JSC No.1 (PC1) to VND41,600 (from VND29,900) and maintain our Trading Buy recommendation (+18% upside).

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: Sembcorp Marine and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Sembcorp Marine MGO – The Implied Option Tells You About the Market, And It’s The Wrong Price.

Sembcorp Marine MGO – The Implied Option Tells You About the Market, And It’s The Wrong Price.

By Travis Lundy

As expected, on 22 September 2021, Temasek announced its Mandatory General Offer for shares of Sembcorp Marine (SMM SP)

As suggested in Sembcorp Marine Rights Done – The MGO Option It Is, Temasek ended up at 46.6% which triggers an offer to remain in compliance with Rule 14.1 of the Takeover Code.  

For each Offer Share: S$0.08 in cash (the “Offer Price”).  The Offer Price is final and the Offeror will not revise the Offer Price or any other terms of the MGO.

There are conditions of which one must take note.

Pursuant to Rule 14.2 of the Code, if the Offeror Concert Party Group does not hold more than 50% of the issued Shares when the MGO is made, the MGO is required to be made conditional upon the Offeror Concert Party Group receiving such number of acceptances which would result in the Offeror Concert Party Group holding more than 50% of the voting rights attributable to the share capital of the Company.

IF the Offer garners shares which would take it above 50%, then it would become Unconditional. Until then, the offer is not unconditional, or complete, if it does not get to 50%. 

Importantly, the Offer will last 28 days and “if the MGO becomes unconditional as to acceptances before the Closing Date or even if the MGO becomes unconditional as to acceptances on the Closing Date itself, there will not be any extension of the Closing Date and Shareholders who do not accept the MGO by the Closing Date will not be able to do so after the Closing Date.

No extension. At all. 

The proposal I made on the 19th when the shares were S$0.084 the previous close was that the stock would probably fall once shares were delivered, but that once fallen, the shares would have much better upside vs downside skew if they reached S$0.079-0.081. The shares actually popped on delivery, but a day later we still closed S$0.081. 

This situation leaves us with an interesting profile. 

More details below. 


Before it’s here, it’s on Smartkarma

Industrials: Mitsui Osk Lines, HMM Co., Ltd., Asia High Yield Bond Index and more

By | Daily Briefs, Industrials

In today’s briefing:

  • MSCI Japan Nov SAIR Preview: Pre-Positioning Begins as Potential Adds Rally & Deletes Drop
  • HMM, Another Massive CB Conversion (Share Dilution) Risk & Short Trading Opportunity
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

MSCI Japan Nov SAIR Preview: Pre-Positioning Begins as Potential Adds Rally & Deletes Drop

By Brian Freitas

MSCI is scheduled to announce the results of the November 2021 Semi Annual Index Review (SAIR) on 12 November (Asia time) with the changes implemented after the close of trading on 30 November.

The review period for price cut-off will run from 18-29 October.

Based on the closing prices from 22 September, we see 6 potential inclusions and 8 exclusions for the MSCI Japan Index. Potential inclusions are Mitsui Osk Lines (9104 JP), Taiyo Yuden (6976 JP), Baycurrent Consulting (6532 JP), Benefit One Inc (2412 JP), Rakus Co Ltd (3923 JP) and Open House (3288 JP), while the potential deletions are Yamada Denki (9831 JP), Thk Co Ltd (6481 JP), Hisamitsu Pharmaceutical Co (4530 JP), Pigeon Corp (7956 JP), Tohoku Electric Power Co (9506 JP), NSK Ltd (6471 JP), Nh Foods Ltd (2282 JP) and Acom Co Ltd (8572 JP).

The largest impact of the MSCI buying will be on Taiyo Yuden (6976 JP) with passive funds needing to buy over 9% of the real float of the stock.

Among the potential inclusions, only Taiyo Yuden (6976 JP) has more than 4 days of ADV to cover, while Pigeon Corp (7956 JP) and Yamada Denki (9831 JP) have over 6 days of shorts to cover among the potential deletions.

The short interest data also shows a large fund putting on shorts on the potential deletions over the last couple of weeks of trading.


HMM, Another Massive CB Conversion (Share Dilution) Risk & Short Trading Opportunity

By Sanghyun Park

Currently, the largest shareholder of HMM is Korea Development Bank (KDB). And KDB and KOBC (Korea Ocean Business Corporation) jointly exercise the management rights of HMM.

ShareholdersShareholdingLast filedShares
Korea Development Bank (KDB)24.96%2021-07-16101,199,297
Korea Ocean Business Corporation (KOBC)3.44%2018-07-0513,943,850
Bae Jae-hoon & 21 others0.04%2021-07-30155,469
ESOP0.26%2018-06-291,038,396
Korea Credit Guarantee Fund (KoDIT)6.05%2019-07-2424,527,807
NPS5.25%2021-06-2221,299,846
Source: DART

However, KDB Chairman (Lee Dong-geul) recently said at a press conference on the 4th anniversary of his inauguration that KOBC alone will run HMM from next year. Chairman Lee declined to comment on the specific method of realizing this, but did say that it would be desirable for KDB to sell the remaining stake in HMM in stages.

In fact, KDB’s complete exit is not surprising. This is because the role of the KDB itself is a state-run creditor bank, and it cannot be in charge of the management of private companies forever. On the other hand, KOBC’s primary purpose is to manage a nationalized company rather than a creditor. Therefore, it is inevitable for KOBC to become the largest shareholder of HMM in the near future.

But the question is how.

In this connection, the KDB chairman had a nuance that KOBC would become the largest shareholder first and KDB would then sell the remaining stake.


Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

Wall Street ended higher as both the Nasdaq and S&P closed ~1% higher despite a slightly hawkish Federal Reserve meeting with more details on tapering and half of the FOMC expecting a rate hike next year (scroll down for details). Most sectors rallied led by Energy, up 3.2% followed by Financials, IT and Consumer Discretionary, up 1.3-1.6%. European stocks also saw a solid rise – DAX, CAC and FTSE ended 1%, 1.3% and 1.5% higher. Brazil’s Bovespa gained 1.8%. In the Middle East, UAE’s ADX gained 0.4% while Saudi TASI slid 0.4%. Asia Pacific markets have started positively – Shanghai is up 0.6%, HSI is up 0.7% and Singapore’s STI is up 0.9% while Nikkei is down 0.7% respectively and. US 10Y Treasury yields fell 3bp to 1.30%. US IG and HY CDX spreads tightened 1.7bp and 7.7bp respectively. EU Main CDS spreads were 1.3bp tighter and Crossover CDS spreads tightened 5.9bp. Asia ex-Japan CDS spreads tightened 1.2bp.

Before it’s here, it’s on Smartkarma

Industrials: MMC Corp Bhd, ANE Logistics and more

By | Daily Briefs, Industrials

In today’s briefing:

  • MMC Corp (MMC MK): This Is A Buy
  • ANE IPO: The Freight Debate

MMC Corp (MMC MK): This Is A Buy

By David Blennerhassett

On the 3 June, Seaport Terminal (Johore) Sdn Bhd, a wholly-owned entity of Tan Sri Syed Mokhtar Albukhary, announced an Offer for port operator and utility play MMC Corp Bhd (MMC MK) at RM2.00/share, a 70.94% premium to last close. Seaport Terminal owns 51.76% of MMC.  The Offer is being done via a selective capital reduction and repayment (SCR) exercise. 

On the 4 August RHB announced, on behalf MMC’s board, the SCR will be tabled to shareholders at a forthcoming EGM.

The circular was dispatched on the 8 September with the EGM scheduled for the 30 September. Payment under the offer is expected towards the end of December.

The independent adviser, Alliance Investment Bank, deemed the Offer not fair, but reasonable.

This still looks done. But this is trading wide, with a largish downward move on decent volume earlier this week. The key risk is how PNB will vote.

More below the fold.


ANE IPO: The Freight Debate

By Arun George

ANE Logistics (1292621D CH) operates a leading express freight network in China’s less-than-truckload (LTL) market. ANE operated the largest express freight network in China as measured by annual total freight volume in each of 2017, 2018, 2019 and 2020, according to iResearch.

ANE is pre-marketing an HKEx IPO to raise up to $500 million, according to press reports. ANE’s shareholders include Centurium, Carlyle, CDH, CPE, NWS, Ping An, Goldman Sachs and Yili.

In ANE Logistics IPO Initiation: Home Delivery, we stated that ANE is a play on China’s LTL market which offers substantial opportunities for market consolidation as the top 10 LTL operators in China had a market share of 5.7% by shipper spend in 2020, according to iResearch. As the largest (by freight volume), fastest-growing and most profitable player, ANE is well-positioned to be a market consolidator. We concluded that ANE’s fundamentals are solid. 

In this note, we look at the PHIP which discloses the 4M21 results and recent developments. The PHIP continues to support our view that the ANE IPO is worth a look for investors willing to brave the current weak sentiment on HKEx IPOs.


Before it’s here, it’s on Smartkarma

Industrials: Toshiba Corp, Nishimatsu Construction Co, ANE Logistics, Asia High Yield Bond Index, Nuvoco Vistas and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Toshiba – Activist Expectations Are Starting to Make Us Antsy
  • Nishimatsu Construction (1820) About to Do Its Last Buyback for a While, and You Can’t Participate!
  • ANE IPO: Limited Room for Margin Expansion
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
  • ANE Logistics Pre-IPO – PHIP Updates – Underlying Growth Is Far from Clear
  • Nuvoco Vistas (Initiating Coverage): Strengthening its leadership position. BUY

Toshiba – Activist Expectations Are Starting to Make Us Antsy

By Mio Kato

The FT had an interesting update on Toshiba’s situation today. They discussed expected valuations from activist investors and the pressure on management to hit those valuations through some combination of asset sales and a PE fund buyout. While such moves could be positive, we are starting to turn more negative on the name.


Nishimatsu Construction (1820) About to Do Its Last Buyback for a While, and You Can’t Participate!

By Travis Lundy

Back in June, Sanshin Electronics (8150 JP) announced a buyback for 28.8% of the company. It came after a long buying campaign by one specific investor. Normally this would be “good news.” Those who want to get out could sell a significant portion of their holding without friction and others could look at the situation and see significant improvement to capital allocation and huge accretion. My piece was called Sanshin Electronics (8150 JP) BIG Buyback Tender – Not Designed For You 

Today, Nishimatsu Construction Co (1820 JP) announced a similar transaction. The stock has done somewhat well over as of recent, hitting a 20+yr high in the past few weeks.

The company has announced it will buy up to 15,000,000 shares for up to ¥54.447bn. That is 26.98% of shares outstanding. The share buyback transaction will be undertaken as a Tender Offer, running from 22 September to 20 October, with the buyback price ¥3,626/share, which is a small premium to the close – Yay!

And once again…

…it is not for you. 


ANE IPO: Limited Room for Margin Expansion

By Shifara Samsudeen, ACMA, CGMA

ANE Logistics (1292621D CH) operates a leading freight express network in China’s less-than-truckload (LTL) market. According to iResearch, ANE has been ranked the largest player in China’s LTL market since 2017 and held a market share of 0.5% in 2020 in terms of total freight volume. The company has filed for an IPO to list its shares on the Hong Kong Stock Exchange and according to news media outlets, the company plans to raise net proceeds of around US$500m.

In this insight, we examine the company’s business model, revenues, margins and outlook.


Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

US markets witnessed a sharp sell-off making it the worst trading session since May. Market volatility remained high as investors watch for the impact of economic disruptions in China, particularly in the real estate space and the upcoming Fed Meeting – the tech heavy Nasdaq fell 2.2% while S&P dropped 1.7%. Sectors across were deep in the red led by Energy tanking 3% followed by Consumer Discretionary and Financials losing more than 2.2%. European stocks had a similar story – DAX fell another 2.3%, CAC 1.7% and FTSE 0.9% with banks falling as much as 4.1%. Brazil’s Bovespa plunged another 2.3% adding to the 2.1% loss witnessed on Friday. In the Middle East, UAE’s ADX and Saudi TASI lost 0.8% and 0.6% respectively. Shanghai remains closed for the mid-autumn festival holiday while most of the other Asian equity indices followed the West – HSI has added another 1% to yesterday’s losses of ~3% in early trading and Nikkei was down 2% while Singapore’s STI was slightly up 0.1%. Hong Kong’s CPI YoY for Aug came softer at 1.6% vs. 3.7% last year expectations of 1.8%.  US 10Y Treasury yields widened 2bp to 1.31%.

ANE Logistics Pre-IPO – PHIP Updates – Underlying Growth Is Far from Clear

By Sumeet Singh

ANE, an express freight network operator in China for less-than-truckload (LTL) market, aims to raise around US$500m in its Hong Kong IPO. The company is backed by a host of financial investors including Centurium, Carlyle, CDH, CPE, NWS, Ping An, Goldman Sachs and Yili.

As per iResearch, ANE’s network was the largest in China in terms of total freight volume over 2017-20 with a market share of 17.2% in 2020.

By Dec 2020, it had collaborated with approximately 26,400 freight partners and agents to serve 3.6m shippers across approximately 96% of the counties and townships in China. Both the freight partners and freight agents operate under its brand and are required to adhere to its service guidelines and policies. ANE’s overall volume and top line growth has been decent. However, not all of its offerings have been growing, while some of its revenue growth was driven by accounting changes. 

We covered various aspects of the deal in our earlier note ANE Logistics Pre-IPO – Margins expanding but appears to be falling behind

In this note we will talk about the updated financials from the PHIP.


Nuvoco Vistas (Initiating Coverage): Strengthening its leadership position. BUY

By HDFC Securities

The recently concluded IPO has also firmed up Nuvoco’s balance sheet. We expect strong cash flow to help accelerate the company’s Karnataka expansion plan. Asset sweating and leverage reduction should bolster return ratios. We initiate coverage on Nuvoco Vistas (Nuvoco) with a BUY rating and a target price of INR 827/share (11x its consolidated Sep23E EBITDA). The company has grown inorganically to become the sixth largest cement company in India and has consolidated its leadership position in the east.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: Transurban Group, Shenzhen International, Asia High Yield Bond Index, Gadang Holdings and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Transurban Entitlement and Shortfall – Well Flagged Deal for a Well Known Asset
  • Shenzhen Intl (152 HK): Positive Highlights from Recent Catch-Up with Company
  • CK Asset Launches S$ PerpNC3; Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and L…
  • Ends Contract Drought

Transurban Entitlement and Shortfall – Well Flagged Deal for a Well Known Asset

By Sumeet Singh

Transurban aims to raise around US$3.2bn (A$4.2bn) via a mix of entitlement offer and private placement to AustralianSuper to fund the acquisition of the remaining 49% stake in WestConnex.

We have covered some of the prior entitlement offer related shortfall bookbuilds in the past:

In this note, we will talk about the deal dynamics and run the deal through our ECM framework.


Shenzhen Intl (152 HK): Positive Highlights from Recent Catch-Up with Company

By Osbert Tang, CFA

We came back with a positive view on Shenzhen International (152 HK) after a brief catch-up discussion with the company. For 2H21, we see upside potential in earnings and our takeaways are also encouraging. We see possibility for higher earnings contribution from the Meilin Checkpoint project and logistics business on asset divestment. At just 6x PER, 0.6x P/B (-2 SD below average) and 8.6% dividend yield for FY21, SZI’s valuations are attractive relative to the fundamentals.

Strategically, the new CEO will foster closer working relations with its parent and affiliates, it is a beneficiary of the Qianhai expansion (as it still has 40% land yet to be developed) and it sees possibility of participation in the booming air cargo terminal business of Air China. We believe the recent share price weakness is a good opportunity for this interesting name in the Greater Bay Area. 


CK Asset Launches S$ PerpNC3; Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and L…

By BondEvalue

US markets ended lower with both S&P and Nasdaq closing 0.9% in the red. Barring Healthcare which was up 0.1% all sectors ended in the red with Materials, Utilities and IT falling the most, down 2.1%, 1.6% and 1.5% respectively. European stocks finished lower too – DAX was down 1%, CAC 0.8% and FTSE 0.9% lower. Brazil’s Bovespa fell sharply by 2.1%, adding to the week’s losses. In the Middle East, UAE’s ADX and Saudi TASI lost 1% and 0.2% respectively on Sunday. With regard to Asian equity markets, Shanghai, KOSPI and Nikkei are closed today. HSI is down ~4%, with  Bloomberg mentioning the fall has been driven the biggest sell-off in property stocks since May 2020 as Hong Kong’s property index is down 5.9%. US 10Y Treasury yields were 2bp reaching 1.34%. US IG and HY CDX spreads widened 0.6bp and 5bp respectively. EU Main CDS spreads were 0.4bp wider and Crossover CDS spreads widened 2.9bp. Asia ex-Japan CDS spreads widened 4.5bp.

Ends Contract Drought

By TA Securities Holdings Bhd

First Construction Job Win in FY22 GADANG’s wholly-owned subsidiary, Gadang Engineering (M) Sdn Bhd, has secured an RM100.3mn subcontract works for Central Spine Road (Package 2) from Binary Vista Sdn Bhd. The subcontract works include demolition, site clearance, earthwork, and an access bridge to Kuala Berang, Terengganu. […] Assuming a gross margin of 10%, the project is estimated to generate RM4.0mn of net earnings throughout the construction period. With this new job win, GADANG’s outstanding order book is estimated at RM525.0mn, translating into 1.4x FY21 construction revenue. […] Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: Sembcorp Marine and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Sembcorp Marine Rights Done – The MGO Option It Is

Sembcorp Marine Rights Done – The MGO Option It Is

By Travis Lundy

The Sembcorp Marine (SMM SP) Rights Offering is complete, and allocations are out as of Friday night.  and it turns out, the MGO Option as discussed in One More Day To Trade Sembcorp Marine Rights, Harvest the Spread, or Buy The MGO Optionas rights trading was coming to a close, was the right way to think about it. 

Only 84.2% of the Offering was covered by shareholders exercising their rights. Temasek took 42.6%, which means that only 72% of the other shareholders took up their rights. That meant that based on the Offering Circular and the Temasek Undertakings therein, Temasek was going to end up increasing its stake by more than 1%, thereby triggering an MGO Option (it required 98.33% minority takeup to avoid going over the MGO trigger).

As I described it, there was still potential risk of MGO non-completion, and the results of the Rights Issue seems to suggest there is still potential risk of MGO non-completion.

More below the fold.


Before it’s here, it’s on Smartkarma

Industrials: ANE Logistics, Sydney Airport, Bharat Electronics and more

By | Daily Briefs, Industrials

In today’s briefing:

  • ANE Logistics IPO Initiation: Home Delivery
  • Asia-Pac Weekly Risk Arb Summary: Sydney Airport, Aussie Pharma, Milton, Shinsei Bank
  • Bharat Electronics Ltd Rs Tactical BUY

ANE Logistics IPO Initiation: Home Delivery

By Arun George

ANE Logistics (1292621D CH) operates a leading express freight network in China’s less-than-truckload (LTL) market. ANE operated the largest express freight network in China as measured by annual total freight volume in each of 2017, 2018, 2019 and 2020, according to iResearch.

ANE passed its HKEx listing committee hearing and will start pre-marketing to raise up to $500 million, according to press reports. ANE’s shareholders include Centurium, Carlyle Group Inc (CG US), CDH, CPE, Nws Holdings (659 HK), Ping An, Goldman Sachs Group (GS US) and Inner Mongolia Yili Industrial Group (A) (600887 CH).

ANE is a play on China’s LTL market which offers substantial opportunities for market consolidation as the top 10 LTL operators in China had a market share of 5.7% by shipper spend in 2020, according to iResearch. As the largest (by freight volume), fastest-growing and most profitable player, ANE is well-positioned to be a market consolidator. On balance, we think that ANE’s fundamentals are solid and the IPO is worth a look for investors willing to brave the current weak sentiment on HKEx IPOs. 


Asia-Pac Weekly Risk Arb Summary: Sydney Airport, Aussie Pharma, Milton, Shinsei Bank

By David Blennerhassett

This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.

I number 36, mostly firm, deals around the region.

More below the fold.


Bharat Electronics Ltd Rs Tactical BUY

By Edelweiss

Ready for next leap

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: Hyundai Heavy Industries, Asia High Yield Bond Index, RITES Ltd, Adani Ports & Special Economic Zone, Chin Well Holdings and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Hyundai Heavy Industries: In the Zone for KOSPI200 Fast Entry
  • Hyundai Heavy Industries Fast Entry & Flow Schedule
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
  • RITES: Robust Order Book To Drive Future Growth
  • Pick of the Week – Adani Ports & SEZ Limited
  • Looking Forward to a Better Year Ahead

Hyundai Heavy Industries: In the Zone for KOSPI200 Fast Entry

By Brian Freitas

Hyundai Heavy Industries (1748326D KS) raised KRW 1.08 trillion (US$920m) in its IPO by selling 18m shares at KRW 60,000/share. The issue was heavily oversubscribed and some of that enthusiasm has spilled into trading on day 1.

The stock is currently trading at KRW 118,500/share, up 97% from the IPO price.

The stock is now in range for inclusion in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) via Fast Entry at the December rebalance. The announcement of the Fast Entry will come a lot earlier, likely in mid to late October.

With a very small free float, the stock will not make it into the FTSE All-World and MSCI Standard Index via Fast Entry. Inclusion in those indices will take place in the first half of 2022 at the earliest.


Hyundai Heavy Industries Fast Entry & Flow Schedule

By Sanghyun Park

As expected, the stock price of Hyundai Heavy Industries is skyrocketing today, which is its market debut day. The opening price was already up 85% from the offering price of ₩60,000. It briefly peaked at ₩135,000, +125% from the offering price, and is now settling at ₩118,000, up 97%.

HHI on the IPO day
IPO price₩60,000
Opening₩111,00085.00%
High₩135,000125.00%
Low₩91,00051.67%
Current₩118,00096.67%
Source: KRX

Fast Entry

At the current price, its market cap reaches ₩10.3T. Yes, it is comfortably above the threshold of ₩7.75T, the market cap of the 50th largest market cap stock among the KOSPI ordinary shares. Coincidently, the current 50th largest market cap stock is Korea Shipbuilding & Offshore Engineering (009540 KS) at this point.

So, if the current share price is maintained for the next 15 trading days, HHI’s KOSPI 200 Fast Entry can be regarded as a done deal. However, the implementation date will be December 9th, the next trading day of the latest month of the KOSPI 200 futures, which also happens to be the regular rebalancing date.

KOSPI 200 Fast Entry
Fast Entry screeningIf the daily average market capitalization for 15 trading days from the date of listing is within the top 50 among all common stocks on KOSPI
Procedure for successful Fast EntryNewly listed stocks are included from the next trading day of the latest month of the KOSP I200 futures market, which comes first after 15 trading days have elapsed from the listing date (quarterly expiration date)
Procedure for NOT successful Fast EntryIf the average market capitalization is within the top 50 common stocks on KOSPI, it is included in the next regular rebalancing regardless of the trading period requirement (6 months). Otherwise, it is considered for inclusion in the regular rebalancing only after six months have elapsed since listing.
Market cap of the 50th KOSPI common stock₩7,749.7B
Market cap at the offering price₩10,342.1B
– Beat by %33.45%
Source: KRX

However, MSCI Standard and FTSE All-World Fast Entries are not possible with the current market cap. Of course, it meets the full market cap requirement but does not meet the float-adjusted market cap requirement because the MSCI/FTSE-concluded float will almost certainly stay at 10%.

MSCI Standard Fast Entry
Fast Entry screeningAs of the first or second trading day of listing, the total market cap must be at least 1.8 times the Interim Cutoff, and the free float-adjusted market cap must be at least 1.8 times the half of the Interim Cutoff.
Procedure for successful Fast EntryFast Entry is announced on the night of the first or second trading day. Fast Entry to the index is effective after the close of the 10th trading day after listing.
Procedure for NOT successful Fast EntryReviewed in the following regular review. In the semi-annual review, a three-month trading period is required to be included in the stock universe.
Interim cutoff = US$2.8B (estimated)₩3,300.0B
Full market cap hurdle = Cutoff * 1.8₩5,940.0B
Float-adjusted market cap hurdle = Cutoff * 0.5 * 1.8₩2,970.0B
Market cap at the offering price₩10,342.1B
– Beat by %74.11%
Float-adjusted market cap at the offering price₩1,034.2B
– Beat by %-65.18%
Source: MSCI
FTSE All-World Fast Entry
Fast Entry screeningAs of the first trading day of listing, the full market cap is above the full market cap threshold (= Mid Cap Inclusion Level*1.5). The free float-adjusted market cap is above the investable market cap threshold (= Mid Cap Inclusion Level*0.5). The Mid Cap Inclusion Level is the full market cap of the smallest company belonging to the 86th percentile of the full market cap of the regional universe.
Procedure for successful Fast EntryFast Entry is announced on the night of the first trading day. Fast Entry to the index is effective after the close of the 5th trading day after listing.
Procedure for NOT successful Fast EntryReviewed in the next regular review. A three-month trading period is required.
Mid Cap Inclusion Level = US$3.7B (estimated)₩4,358.3B
Full market cap threshold = Mid cap threshold * 1.5₩6,537.4B
Investable market cap threshold = Mid cap threshold * 0.5₩2,179.1B
Market cap at the offering price₩10,342.1B
– Beat by %58.20%
Float-adjusted market cap at the offering price₩1,034.2B
– Beat by %-52.54%
Source: FTSE

Index float

Below is Hyundai Heavy Industries’ float schedule. The immediate float is 9.62%, which is also the real-world float as its shareholding structure is quite neat.

Float scheduleSharesShareholding %
Locked up shares80,234,63390.38%
KSOE (6 months lockup)70,773,11679.72%
ESOP (1-year lockup)3,491,9973.93%
IPO institutional – lockups5,969,5206.72%
6 months1,266,3031.43%
3 months4,030,7074.54%
1 month630,6790.71%
15 days41,8310.05%
Float shares8,538,4839.62%
IPO institutional – non-lockups3,930,4804.43%
IPO retail4,608,0035.19%
Source: DART

Considering the cases in which KRX calculated immediate floats of IPOs in the past, it is highly likely that KRX will include up to three-month IPO lockup in the immediate float in this case as well. So, the float applied to the KOSPI 200 Fast Entry should be 15%. On the other hand, given HHI’s neat shareholder structure, MSCI/FTSE should have no room to play around. So, the nominal immediate float of 9.67% (10%) will be their immediate float as well.

Index floatNominalKOSPI 200MSCI/FTSE
1 year100.00%16.34%16.34%
6 months96.07%16.34%16.34%
3 months14.92%14.92%14.92%
1 month10.38%14.92%10.38%
15 days9.67%14.92%9.67%
Listing9.62%14.92% (15%)9.62% (10%)
Source: DART

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

US markets ended mixed with August retail sales coming higher while the weekly jobless claims increased slightly – Nasdaq ended 0.1% higher while S&P finished 0.2% lower. Eight out of eleven sectors ended in the red. Materials and Energy down more than 1%, led the losses while Consumer Discretionary up 0.4% contributed to the gains. European stocks finished higher – CAC closed the day 0.6% higher while DAX and FTSE were up 0.2% each. Brazil’s Bovespa added another 1.1% to the week’s losses. In the Middle East, UAE’s ADX and Saudi TASI gained 0.8% and 0.1% respectively. Asian markets have started mixed as investors keenly watch HSI which has already dropped 6% in the week – HSI was down 1.5% in early trade, Shanghai and Singapore’s STI were down 0.1% while Nikkei was up 0.3%. US 10Y Treasury yields added another 4bp reaching 1.34%. US IG and HY CDX spreads tightened 0.04bp and 0.1bp respectively. EU Main CDS spreads were 0.2bp tighter and Crossover CDS spreads tightened 1.7bp. Asia ex-Japan CS spreads tightened 0.2bp.  0.4bp. Asia ex-Japan CDSUS retail sales for August 2021 were up 0.7% MoM, much better than estimates of a decline of ~2%, indicating resilient demand. The gain came despite a sharp 3.6% drop at motor vehicle and parts dealers amid ongoing shortages and supply chain issues. That resulted in a 1.8% rise in retail sales ex-auto.   Meanwhile, the latest unemployment insurance weekly data showed a 332k increase in jobless claims last week vs. estimates of 320k.

RITES: Robust Order Book To Drive Future Growth

By Axis Direct

We expect the company to deliver Revenues/EBITDA/APAT growth of 26%/23%/21% CAGR respectively over FY21-23E.

RITES Ltd (RITES) maintained an EBITDA margin at 27% despite headwinds caused by Covid19 induced lockdowns in FY21.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Pick of the Week – Adani Ports & SEZ Limited

By Edelweiss

Adani Ports & SEZ Limited (APSEZ)’s business is classified into three verticals consisting of Ports, Logistics and Special Economic Zone.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Looking Forward to a Better Year Ahead

By TA Securities Holdings Bhd

Friday, September 17, 2021 Sector: Building Materials Chan Mun Chun Tel: +603-2167 9731 [email protected] www.taonline.com.my […] FY21 core profit of RM26.6mn came in within our expectation, accounting for 104.9% of our full-year estimate. […] The group expects the global demand for industrial fasteners to gradually return to the pre-pandemic level in the foreseeable future. […] On the other hand, the Vietnam plant is currently running at around 60% of capacity due to a shortage of workers.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma